As industrial land supply decreases, what's next for occupiers and tenants?

With industrial land supply decreasing across Brisbane, Sydney and Melbourne, what's next for occupiers and tenants?

Written by Peter Evans, National Director | Occupier Services

Sydney, Melbourne and Brisbane are currently experiencing a lack of supply of industrial land and while supply continues to reduce, tenant demand remains stable. Although the Government holds a substantial amount of industrial land, it is simply not keeping up with demand and the flow on effect to occupiers and tenants means competition for sites, increasing rent and reduced incentives.

With no short-term relief on the horizon for occupiers and tenants, it may be worthwhile thinking strategically about your property/s and what some alternate options may be, including the following.
Investing in multi-storey, dark or vertical warehouses

Multi storey warehousing in urban areas will strengthen over the next few years as it addresses both the scarcity and high cost of land. As is the case for vertical and dark warehouses.

Vertical warehouses are becoming a popular option to combat the decrease in space, especially within major cities. Vertical warehouses improve efficiency by reducing the number of staff required and most importantly reducing floor space. The two most popular types are listed below:

Vertical lifts: Vertical lifts are automated storage retrieval systems with some form of elevator which retrieves pallets or draws from above.
Vertical carousels: Carousels are also automated; however the structure moves up and down, and the carousel shifts the wanted items to the front where it can be accessed.
Dark high clearance warehouses are taking advantage of more automated systems. When goods are ordered the item is automatically picked up using robotic forklifts. While dark warehouses do currently exist in Melbourne and Sydney, they are not common across Australia. These warehouses are more common across Europe and America where quite a few retail users have installed automated systems and dark warehousing throughout their logistics network. The emitting factor currently with dark warehouses is the high capital cost for installation of automation verses the pack back of the investment.

As land prices and rents increase, particularly across Sydney, Melbourne and Brisbane, we expect to see more examples of highly automated dark warehouses such as Coles recent announcement on plans to build two new automated distribution centres.

Consider reducing footprint in some capital cities and moving into others

Rents across Sydney continue to be significantly higher than Melbourne, with net effective rents in Sydney being almost double that of Melbourne. This is driving some occupiers to consider reducing their footprint in Sydney and moving some operations into Melbourne sites.

Recent studies from our Logistics Consultancy business have found there is considerable financial advantages in not only determining the right size for the facility but also the location that provides the best networking solution across the eastern seaboard. This could present a feasible solution for occupiers in Brisbane, Sydney and Melbourne given their locations on the eastern seaboard.
Looking at regional locations

With the decline of space within the inner cities of Melbourne, Sydney and Brisbane. Regional hubs are beginning to grow in the city’s outskirts. In Sydney, western markets are sought out for industrial assets and this is similar within Melbourne where the west of Melbourne is becoming a growing industrial hub.

In addition, regional locations such as Ballarat, Bendigo, Geelong, Albury Wodonga, Newcastle, Bathurst, Wollongong and other similar cities are being considered as economic alternative for industrial occupiers. Regional locations could also present an opportunity for occupiers to take advantage of Government incentives being provided in exchange for employment opportunities.

Colliers industrial occupier representatives can assist in assessing your future needs, run a ‘stay vs go’ analysis and/or negotiate with the landlord to act in your best interest and achieve the most favourable commercial, and other, terms within your lease.